What is an Exit Strategy

The process by which an investor anticipates to quit out of a business venture made in the past. Various investors in private business wish to exit their business since they have attained retirement age and they have no successor to lead the same or, personal health issues. At times investors will be quite happy with what they would have earned in the past and will plan to exit with a dread of any loss in future.

How can any business man overlook the story “Hare and the tortoise”? This stands very true in relevance to successful business not for the moral of the story “Slow and steady wins the race” or later management studies modified the moral of the same story as “Fast and consistent wins the race”; but for having a focus on start and the finishing line in every business.  Yes, ideally every small or big business should draw a business plan with exit strategy being a part of planning. Deriving or planning an exit strategy is not anticipating failure in future but planning to succeed keeping negative traits in business and to overcome the same.

Whenever we start new business to make our dreams come true, a floating feeling of pursuing a passion always persists in every businessman. For example, I always wanted to own a shopping mall, wanted to be boss having a cabin of mine etc. Hence any strategy should be in sync with our goals or vision.

Investors think to exit when they analyze three important things: the economic state so as where they stand, time required to plan and impact of taxes.

What are the different forms of exit?

Here listed are some of the likely expected forms of exit:

  • Selling business by part or entire business activity: An option of selling business to a sole buyer.
  • Forwarding business to relative: This kind of transfer can minimize estate taxes but then proper dealing is demanded so as who will run the business.
  • Promoting to Employee Stock Ownership Plan (ESOP): Tax benefits can be obtained for ESOP. And in this case owner will be part of team and work not just as owner but also as an efficient leader.
  • Taking the company broadcast
  • Liquidation

To conclude, to design successful exit one must gather foundations in place like simple corporate structure, tax efficiency, and signed documents that softens planned exit. May be it is quite reluctant to convince all stake holders to have exit strategy in business plan, but to be practical it stands as vital element in the journey of successful business. ”Precaution is better than cure”, Planning exit strategy is better than failure.